Friday, August 12, 2016

What is Trumponomics, and how would it affect Israel?

Israel should prepare for a world in which economic borders and walls are restored.

By
SHLOMO MAITAL / Jerusalem Post

WHOM WILL Americans choose as their president on
November 8? Arguably America’s choice for president is as important
for the people of Israel as their own prime minister.

He or she will impact Israel’s foreign policy, economy, defense and even internal politics.

Democratic candidate Hillary Clinton’s policies and platform are more or less transparent.

She
has been highly visible for some 24 years, serving as US senator,
secretary of state and an active first lady, beginning with Bill
Clinton’s election in 1992. She first visited Israel 35 years ago and
has been back many times since.

In contrast, the Republican
candidate Donald J. Trump, host of the popular reality show “The
Apprentice” for 11 years, is rather opaque. As a BBC commentator noted,
when Trump announced he was running for president on June 16, 2015, he
was widely mocked by pundits. They are laughing no longer.

Though
Trump trails Clinton in the polls, political analyst Nate Silver, who
correctly predicted the results of the 2012 presidential election in
all 50 states, gives him a 38 percent chance to win. And there are
still three months left until the election.

Trump regularly foregoes teleprompters and written speeches, preferring to improvise.

This
makes it hard to nail down what he believes and will implement. But it
is possible to piece together a fairly coherent picture of
Trumponomics – the Trump view of business and economics.

For
months I’ve been reading mountains of columns by economists and experts
vilifying Trump and scorning his views. A closer look at his speeches
and statements reveals that there is a reasonably consistent worldview
known as Trumponomics and it is not at all stupid.

Moreover,
Trump has growing numbers of counterparts in Europe as well whose
beliefs match his. Even if he loses the election, Trump and his ideas
will powerfully impact politics in the US, the world and, perhaps, even
in Israel.

Who is Donald J. Trump? Trump is largely known for
his fierce opposition to immigration and his call for a wall on the
Mexican border to be built and paid for by Mexico. Despite this, Trump
himself is the son and grandson of immigrants. His mother, Mary, was
born in Scotland, immigrating to the US when she was 18. Trump’s father
Fred, a real estate developer, was the son of immigrants from
Kalistadt, Germany.

Trump’s third wife, Melania, emigrated from Slovenia.

Trump was the fourth of five children.

He
had to leave school at 13 because of bad behavior and was sent to the
New York Military Academy. He has an undergraduate degree in finance
and commerce from the University of Pennsylvania, an Ivy League school.
In college, he got four draft deferments, including a medical
deferment, which kept him from fighting in Vietnam.

How wealthy
is Trump? It’s hard to say. He refuses to reveal his income tax
returns, the first presidential candidate to refuse since 1976. Trump
says he is worth over $10 billion. Forbes magazine estimates his wealth
at $4.5b.; Bloomberg, $2.9b. In any event, he is a billionaire.

One
of his main assets is his name. Trump claims his Trump brand is worth
about $3b. (Forbes says it is worth only $200 million).

His name
appears, or appeared, on such products or services as an airline
business, bottled water, trail mix, hats, gum balls, gummy bears, tea,
pan pizza, a video game, a university, steaks, vodka, wine and many
others. Cynics have suggested that Trump’s presidential candidacy
enormously boosts his brand value, win or lose, and that is his major
goal.

Why is Trump against globalization? Globalization is the
process of eliminating national economic borders and fostering free
trade and movement of goods, services, capital, information and people
across countries. It accelerated with the fall of the Berlin Wall in
November 1989 and the reunification of Germany, leading to the European
Single Market, and with the admission of China to the World Trade
Organization in 2001.

Globalization has created enormous wealth
for some individuals, businesses and countries, especially in Asia. For
two decades, world trade grew twice as fast as the world economy.
Those able to compete in world markets became wealthy. But it also
created enormous loss and suffering for many, and rampant financial
speculation led to the 2008 global collapse that the world is still
struggling to deal with.

Trump thinks America has lost out in
free trade. He opposes NAFTA (the North American Free Trade Agreement
that lowered or eliminated tariffs between the US, Canada and Mexico)
and opposes the Trans Pacific Partnership (TPP), which would do the
same for US-Asia trade.

The global retailer Wal-Mart has some
6,000 suppliers in China. As a result, American consumers can buy
inexpensive products made in China. This is a major gain.

But,
on the other hand, Pittsburgh steel workers have lost their jobs and so
have many other blue-collar American workers ‒ Chinese workers now
have the jobs and the pay. And the Americans? They work at far lower pay
for Wal-Mart and McDonald’s.

Economists claim, opaquely, that free trade and globalization are “paretooptimal.”

That
means the net gains from it exceed the net losses. If, they say, the
losers were compensated fully, there would still be wealth and income
left over. That is small comfort to the millions of people whose job
skills are now obsolete. They have not been compensated at all for
their losses and their incomes have stagnated. They are Trump’s
constituency.

And these losers are not only Americans.

Many Israelis, too, have lost out through globalization.

Israel
as a nation has gained a lot, because it has leveraged its
entrepreneurship, innovation and hi-tech skills into powerful growth
engines, made possible by free trade and access to world markets. But
only 8 percent of the Israeli labor force is hi-tech.

What about
the other 92 percent? If Trump were speaking in Hebrew about how
globalization has hurt the lower middle class, he would find responsive
listeners in Israel.

Globalization of capital markets has
enabled the wealthy to double their money effortlessly every decade.
Low and even middle-class people who possess little or no wealth
cannot.

So, for the first time in decades, globally, the
wealthiest 1 percent of the world hold more wealth than the poorest 99
percent.

Though he is among the one-tenth of 1 percent of the
wealthiest, Trump plays on this chord and finds it resonates with his
supporters.

If elected, Trump has threatened to slap tariffs on
Chinese imports. He claims, with good reason, that China’s currency,
the renminbi, is kept undervalued (too cheap) by Chinese purchases of
dollars.

As I write this, you can get 6.69 Chinese renminbi
(“money of the people” in Mandarin) for one dollar. That will buy you a
lot of Chinese goods. The true purchasing-power value of the renminbi
is about four per dollar.

This means that everything China sells
to the world is one-third cheaper (in dollars) than it would be if its
exchange rate were set in open free markets. If China stopped buying
dollars, its currency would rise to around its true purchasing power
level.

Moreover, the renminbi exchange rate has moved (or has
been moved) in the wrong direction since 2014, when you got only six
renminbi per dollar; instead of getting more expensive it is getting
cheaper.

A US tariff on Chinese imports will ignite a trade war, with China inevitably retaliating.

This
would hurt Israel because it depends crucially on its exports and free
trade, and a reversal of globalization would entail large economic
damage for Israeli exporters.

Chinese purchases of US treasury
bonds are in part how borrow-and-spend America has paid for excessively
high levels of consumption and trade deficits, now exceeding (according
to Trump) $800b.

Do Americans understand that they have been
living on borrowed money and borrowed time, and that Trumponomics may
signal an end to this party? Strangely, Trump’s opposition to
globalization is supported by the research of one of history’s greatest
economists – the late MIT professor Paul Samuelson, a Nobel laureate.
Long ago, Samuelson proved, in a very dense theoretical paper, that in
direct contradiction to conventional Economics 101, free trade does not
benefit both trading partners. If one partner (US) cedes its
manufacturing to another (China) through trade, by importing
manufactured goods, China reaps all the gains from productivity
increases inherent in manufacturing and America loses them. And this is
precisely what has happened.

But a coalition of powerful
wealthy interests, largely Republicans, supports free, open trade,
Trump notwithstanding, because they have gained immense fortunes from
it. Trump speaks for those largely silent until now, who have been big
losers.

It is a huge irony that it took a billionaire to speak
for the blue-collar underclass and an even greater irony that it is a
right-wing Republican who is blasting the destructive impact of
globalization and free trade.

Is Trump a business genius? The
Washington Post newspaper summed it up thus: “Trump is a mix of
braggadocio, business failures and real success.” Trump’s hotel and
casino businesses have declared bankruptcy four times in two decades,
during 1991-2009. Trump once told Newsweek magazine in 2011, “I do play
with the bankruptcy laws ‒ they’re very good for me” as a tool for
trimming debt.

Israeli tycoons, too, have been known to trim
debt with so-called “haircuts” that have cost pension funds and banks
billions of shekels. But they are not running for the highest political
office.

Does Trump have a coherent economic plan? No – but show me a politician who does.

Trump
wants to cut corporate taxes to 15% from 35%, and cut personal income
taxes to between zero and 25%. He also wants to pay off the national
debt, slash the budget deficit and boost defense spending.

The
last candidate who promised this was Ronald Reagan, in 1980. In his two
terms as president, Reagan both cut taxes sharply (in 1982, and again
in 1987) and boosted defense spending, as he promised. The result was a
spurt of Keynesian deficit-spending growth that led to an economic
boom. Reagan was no Keynesian – but nobody cared, the end result was
good, and to this day Republicans revere the Reagan presidency.

Does Trump support Israel? Trump does have a Jewish connection.

His
daughter Ivanka is married to Jared Kushner and converted to Judaism
before her marriage. Trump told this year’s AIPAC convention and later,
CNN, “Not only do I have Jewish grandchildren, I have a Jewish
daughter; and I am very honored by that.”

Trump is largely
unfamiliar with the Middle East quagmire, but part of his “Make America
Great” program appears to involve making countries pay their fair
share of defense capabilities, and this bodes ill for the massive
annual defense aid paid to Israel, now under negotiation. Even if
Israel does agree to the proposed Obama defense assistance agreement,
Trump could rescind it if he becomes president.

In his
best-selling 1987 book The Art of the Deal, actually written by
ghost-writer Tony Schwartz, Trump admits he uses “truthful hyperbole.”
Hyperbole – exaggeration – is by definition untruthful.

In gaining the Republican presidential nomination, Trump made outrageous statements and gained attention in this way.

Now, as presidential candidate, every word Trump speaks will be weighed and fact-checked.

But Trump has shown no inclination of mending his ways. It may well be that truthful hyperbole will be his undoing.

But
in his closing speech at the Republican National Convention, Trump
skipped the hyperbole and gave a reasoned talk, which he
uncharacteristically read.

“America has lost nearly one-third of
its manufacturing jobs since 1997, following the enactment of
disastrous trade deals supported by Bill and Hillary Clinton. Remember,
it was Bill Clinton who signed NAFTA, one of the worst economic deals
ever made by our country. Or frankly, any other country. Never, ever
again.

“I am going to bring our jobs back to Ohio and
Pennsylvania and New York and Michigan and all of America, and I am not
going to let companies move to other countries, firing their employees
along the way, without consequences. Not going to happen anymore… I
will make individual deals with individual countries. No longer will we
enter into these massive transactions with many countries that are
thousands of pages long and which no one from our country even reads or
understands.

“We are going to enforce all trade violations
against any country that cheats. This includes stopping China’s
outrageous theft of intellectual property, along with their illegal
product dumping, and their devastating currency manipulation. They are
the greatest currency manipulators ever. Our horrible trade agreements
with China, and many others, will be totally renegotiated,” he said.

This
is the essence of Trumponomics ‒ “individual deals with individual
countries” means good-bye globalization, whose essence was the
most-favored nation General Agreement on Tariffs and Trade deal. It
stated that what is offered to one trading partner must be offered to
all.

If Trumponomics happens, it would be bad for Israel’s
economy. Trumponomics seeks to limit world free trade. Israel’s main
growth engine is trade; limiting trade will do damage.

Trump is a
symptom. Even if he loses, his anti-free trade ideas are spreading.
Israel should prepare for a world in which economic borders and walls
are restored. It sounds fanciful, but perhaps Israel should seek
associate membership of the European Union, as a preventive measure.
Small trading nations need to join large powerful clubs in a world of
deglobalization.

1 comment:

Diane...go to Drudge and watch an old patriot flip CNN off! It was RIGHTEOUS! He gives CNN the bird and said he was a Patriot, and tells the CNN guy he was a TRAITOR. I LOVED IT! We need more men with balls like that!

People are angry! If Hillary wins, there might be trouble. We aren't going to be pushed around anymore.

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I’m an American Patriot...part of the grassroots movement of bloggers spreading the truth about the corrupt and traitorous Obama regime and his sanctioned islamization of America. I'm also co-host with Craig Andresen of RIGHT SIDE PATRIOTS on American Political Radio. http://tunein.com/radio/American-Political-Radio-s273246/